Abstract

The increasing demand for high quality global accounting standards raise the pressure of the International Accounting Standards Board to enact a single set of high quality, understandable, and enforceable global accounting standards and to promote convergence on these standards. In recent years, the IASB worked intimately with the FASB in the US which is one of the most important national standards setters in the world.
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The International Accounting Standard Board (IASB) is the standard-setting section of the International Financial Reporting Standards (IFRS) and it is also an independent, private sector and not-for-profit organization. The IASB is promised to develop a set of high quality international accounting standards and provide high quality comparable and clearly information in the interest of public. However, the Financial Accounting Standard Board (FASB) is a private sector that setting standards of financial accounting that control the preparation of financial reports by nongovernmental entities. Using a single set of high quality accounting standards both domestically and internationally is the goal of the IASB and FASB who are working together. Several joint projects have been conducted by the IASB and FASB to achieve the aim, and convergence project is a significant project of them.2

Cooperation between FASB and IASB to achieve convergence of accounting standards. All business, viewed by 1 May 2011, < http://www.allbusiness.com/accounting/550776-1.html> 2 Convergence, Wiley IFRS, Viewed 3 May 2011, < http://wileyifrs.com/environment/convergence/>

Part A
The objective of convergence project, which is pursued jointly by the IASB and the US FASB, is to get rid of a variety of differences International Financial Reporting Standards and US Generally Accepted Accounting Principles. 3 The IASB and the FASB already finished the first step of the convergence project that produced an advanced conceptual framework for International Financial Reporting Standards (IFRSs) and US generally accepted Accounting practices (GAAP). Depending on the existing IASB and FASB frameworks, the new conceptual framework project intends to update and refine the past concepts and show the changes took place during the twenty or more years from the concepts were first developed. The changes mainly occurred in markets, business practices and the economic environment.4 To meet the demand of high quality global accounting standards, the IASB pursue three main sets of project. The first project includes four parts: business combinations, insurance contracts, performance reporting, and share-based payments which gave leadership for the convergence of accounting standards. The second one is the application of the IFRS for the first time and the activities of the financial institutions, which helps the existing accounting standard much easier to apply. The third project is pretending to enhance the fundamental standards which the IASB came into from the IASC. As one of the International

IASB and US FASB Complete First Stage of Conceptual Framework, Financial Accounting Standards Board, viewed 1 May 2011,<

http://www.fasb.org/cs/ContentServer?site=FASB&c=FASBContent_C&pagename=FASB%2FFASBC ontent_C%2FNewsPage&cid=1176157497474>
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Conceptual Framework, IFRS, viewed 1May 2011, < http://www.ifrs.org/Current+Projects/IASB+Projects/Conceptual+Framework/Conceptual+Framework.htm>

Accounting Standard Boards most significant partners, Financial Accounting Standard Board keeps working closely with IASB to realize the goal of convergence. Having experience the late financial reporting crisis in America, the FASB has appreciated that it cannot handle all the accounting problems. Compared with international accounting standards, which is more principles-based and more easily applied, the U.S. accounting standards still have some sections need to be enhanced. Hence, the FASB has become an advocator of international accounting standards as IASB has improved some of its standards. On September 18, 2002, the IASB and the FASB signed a contract called The Norwalk Agreement in the meeting taking in Norwalk. In this agreement, the IASB and the FASB promised to do their best to coordinate with each other and make sure their past financial reporting standards completely compatible and maintainable. Then, depending on The Norwalk Agreement, the FASB and the IASB declared a commitment together which show their effort to make their existing accounting standards fully convergence.5 As a consequence of the convergence project, the FASB ultimately adopted the IFRS. The present chair of the FASB hopes that the new standards will improve the U.S. reporting, simplify the U.S. standards and standard setting and provided international convergence.6

Part B
From the view of U.S., the limitation of the international standards is that they are not yet adequately comprehensive and remain too ambiguous.

Cooperation between FASB and IASB to achieve convergence of accounting standards, All business, viewed 2 May 2011, < http://www.allbusiness.com/accounting/550776-1.html> 6 Convergence, Wiley IFRS, Viewed 3 May 2011, < http://wileyifrs.com/environment/convergence/>

There are also some sections of the U.S. standards that should be improved. Firstly, the conceptual framework of FASB ignores the role of stewardship and over concentrate on an investment role of accounting. Secondly, the FASB relies on fair values which are rarely reliable, and accounting reports furnish such kind of information will hurt the relevance and usefulness of accounting information. Next, FASB hope for neutral accounting numbers, but conservative standards are required to provide neutral accounting standards when given managements upward bias in reporting. The last one is FASB standards are based completely on conceptual framework. Some concepts are too broad to be useful for

determining a particular accounting standard. Before the accounting sandals of Enron, the United Stated was very powerful in its resolve not to adopt IFRS. It believes that the IASBs principles-based standards were not as good as its rules-based standards. The non-involvement of the U.S. reflects an important limitation in the global acceptance of IFRS, because the United States is the worlds main capital market. When we consider the concept of principles-based accounting standards and rules-based accounting standards, principle-based accounting standards seems to be less detailed and more concise and more easily applied. However, the rules-based seem to be comparatively lengthy and present clear guidelines on how to account for particular attributes of different transactions and events. Compared with rules-based accounting standards, the principle-based standards reference usually follows the general principles which are incorporated within a conceptual framework of accounting. Whats more, principles-based accounting standards is more relies on professional judgment than rulesbased accounting standards. During 2001 and 2002, the resolve of U.S. began to decrease because of the bankruptcy of Enron and other accounting scandals; the context of the FASB

standards was deeply modified at the same time. The Enrons bankruptcy also exposed the disadvantage of some detailed US GAAP rules, especially some standards on consolidation. Now, the FASB has become a advocator of improved international accounting standards, and it has entered a joint agreement with the IASB to converge and improve the standards of both the IASB and the FASB.7

Part C
The IASB and FASB have a number of differences to be converged. 1. Business combinations are different. In different countries, the accounting methods allowed and the standard we choose to recognize a particular method to be used in difference circumstance are quite different. When we compare the IASB to the FASB, the definition of business combinations, the accurate accounting method for business combinations, the acquired accounting for goodwill and intangible assets and the primary measurement of the identifiable net assets acquired in business combinations are various. 2. Financial Performance Reporting is different. The items under comprehensive income were used to separate as financing and operating and income flows and valuation adjustments. 3. Revenue Recognition project. The IASB has different standards about revenue recognition to the U.S. In the U.S., the revenue recognition is a very important part of financial reporting. At the same time, it raises the attention of the world.

Deegan, C. Financial Accounting Theory, Edition 3, McGraw Hill 2009

Part D
Presently, the staff of IASB and FASB developed some short and long-term strategies to achieve to goal of convergence. In the short term, the improvements project contracted by the IASB and the FASBs accounting pronouncements were trying to eliminate the difference between them. In the short-term stage of the convergence project, the differences between the U.S. GAAP and LAS will also be eliminated. In the long-term, the FASB and IASB have contracted some projects: Business Combinations, Financial Performance Reporting and Revenue Recognition. Business Combinations--Phase II: Purchase Method Procedures The FASB published two new standards to eliminate the pooling of interest method and contract annual test for impairment instead of amortization of goodwill, which are Statements No.141 Business Combinations and No.142 Goodwill and Other Intangible Assets. After the activity of the FASB, the IASB began to develop the Business Combination project, which includes two stages. The first stage is to eliminate the

differences in the definition of business combinations, the appropriate methods of accounting for business combinations, the accounting for goodwill and intangible assets acquired in a business combination, and the initial measurement of the identifiable net assets acquired in a business combination. The second stage includes three groups of issues: 1. Issues about how to apply the purchase method; 2. New basis/fresh start accounting expected to cover business combinations involving entities under common control; 3. Issues excluded from Stage I:

- business combinations involving two or more mutual entities - business combinations in which separate entities are brought together to form a reporting entity by contract only, without obtaining an ownership interest

Financial Performance Reporting The FASB and IASB are contracting the Financial Performance Reporting projects at the same time. The main categorization of the items under comprehensive income is the primary issues they have discussed recently. They try to separate the items in two groups: financing and operating, income flows and valuation adjustment. But after some discussion, some support that classify the items of comprehensive income into operating and financing, then the comprehensive income is equal to the total operating income add total financing income. However, the IASB and FASB implied that they agree to develop the categorization of the items in comprehensive income and do a further discussion. Revenue Recognition Project Recently, the IASB and FASB began to discuss the revenue recognition together. In the U.S., the revenue recognition is a significant part as it provides most of the restatement source of financial statement. In recent years, the revenue recognition also raises the worlds caution. Both the boards are working to develop a joint project about revenue recognition. The weakness of the conceptual standards what has been published has been discussed by the IASB and FASB in recent convergence project meeting. In the FASB standards, they use realization and earnings approach and asset and liability approach

as two main approach of revenue recognition. Through the effort of both Boards staff, they decide to try to use asset and liability approach to measure the revenue.8

Part E
(a) Reporting entity On October 24, 2005 the Joint Meeting of IASB and FASB During the meeting, the major issues are around whether we should include or not include a financing category in the comprehensive income and the statement of earnings. The definition of a financing category is an important section of this project and some staffs inquire the IASB and FASB Board how to build the works of definition of a financing category. The nonfinancial institutions are the main part that the staff needs to concentrate on. The IASB and FASB determined that: Firstly, on the starting of the comprehensive income and the statement of earnings, the transactions of the business and the events of the same financing group should be get together and demonstrated as one class. Secondly, a financing classs definition should be enhanced in the front of any other classes. Lastly, all entities except financial institutions should apply the definition of financing consistently. Even no decisions have been made, the IASB and FASB have do the most they can and direct their staff the way to define a financing class as more as possible.
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Cooperation between FASB and IASB to achieve convergence of accounting standards, All business, viewed by 1 May 2011, < http://www.allbusiness.com/accounting/550776-1.html>

(b) Objectives and qualitative characteristics On October 25, 2005 Joint IASB/FASB Board Meeting When the IASB and FASB discussed about how to develop a common conceptual framework, they made some decisions about four important matters. First, the IASB and FASB discussed the way how to use the qualitative characteristics of accounting information when we developing accounting standards for the purpose of contract a decision useful financial report. After the meeting, the Boards explained the way to deal with issues which were rose by the relationships between qualitative characteristics. The Boards also required the staff to prepare the drafts of the concepts of qualitative characteristics. Second, the Boards discussed for particular entities whether they will have different objectives and qualitative characteristics. The Boards decided that for some private entities, if they have financial reporting which is decision useful, the objectives of the financial reporting and qualitative characteristics have no need to be adjusted. They also announced that they will discuss the limitation of cost benefit later. The different approached to apply particular qualitative characteristics should be considered. Third, the objectives of financial reporting staff draft. Under the following situations the IASB and FASB direct their staff to draft. (a) The staff of IASB and FASB should attempt their best to contract an appendix to present the limitations of financial reporting. And the appendix should also include the environmental circumstance of the financial reporting.

(b) The important concepts of the objective should be highlighted by using techniques except black letter or gray letter format which was used in the IASB standards. The staff of the Boards may consider using side-heading or summaries to highlight the important concepts. The others sections of the report will be affected by the techniques choose to highlight important concepts as well. (c) Instead of financial statement, the Boards decide to describe the objectives as parts of financial reporting. (d) The IASB and FASB required the presentation of the project conditions and the plans as well as the due date of the process. An exposure draft has been named of the first due process document for the objectives of financial reporting and qualitative characteristics about accounting information.9

Notice of meetings, Financial Accounting Standard Board, Viewed 1 May 2011, <http://www.fasb.org/action/aa110305.shtml >

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Reference
Website: Cooperation between FASB and IASB to achieve convergence of accounting standards, All business, viewed by 1 May 2011, <http://www.allbusiness.com/accounting/5507761.html> Convergence, Wiley IFRS, Viewed 3 May 2011, <http://wileyifrs.com/environment/convergence> Conceptual Framework, IFRS, viewed 1May 2011, <http://www.ifrs.org/Current+Projects/IASB+Projects/Conceptual+Framework/Concep tual+Framework.htm > Notice of meetings, Financial Accounting Standard Board, Viewed 1 May 2011, <http://www.fasb.org/action/aa110305.shtml> IASB and US FASB Complete First Stage of Conceptual Framework, Financial Accounting Standards Board, viewed 1 May 2011, <http://www.fasb.org/cs/ContentServer?site=FASB&c=FASBContent_C&pagename=F ASB%2FFASBContent_C%2FNewsPage&cid=1176157497474> Book: Deegan, C. Financial Accounting Theory, Edition 3, McGraw Hill 2009

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